The State Bank of Pakistan (SBP) is widely expected to leave its benchmark policy rate unchanged at its monetary policy meeting on Monday (July 27), amid Gulf conflict uncertainty.
The Gulf conflict drove global oil prices above $100 per barrel, adding inflationary pressures and affecting economies worldwide.
Media reports quoting experts suggested that preserving macroeconomic stability remains the central bank’s top priority, particularly at a time when economic growth remains subdued. They believe the SBP is unlikely to make any policy changes that could disrupt this balance.
Although higher international oil prices have increased inflation risks, the government and the central bank continue to aim for average consumer inflation of 7–8% during fiscal year 2026-27. While some analysts remain sceptical about achieving that target, most say the outcome will largely depend on how the regional situation develops. Military exchanges between the United States and Iran have continued, with Iran targeting American military facilities in several Gulf states.
The SBP last adjusted its policy rate on April 27, raising it by 100 basis points to 11.5% after previously cutting it by 50 basis points to 10.5% on Dec. 15, 2025. Since April, the central bank has maintained the rate despite repeated demands from business and industrial groups for a reduction of at least 200 basis points.
The central bank has also resisted calls to adopt a more growth-oriented monetary stance by lowering borrowing costs to encourage private-sector lending. Commercial banks have likewise continued to favour investments in government securities over business financing. During FY26, banks invested Rs5.9 trillion in government debt instruments, while private-sector borrowing amounted to only Rs1.4 trillion, largely for short-term working capital needs.
Most analysts believe the likelihood of either a rate cut or an increase remains low. They argue that reducing rates could intensify inflationary pressures, while raising them would further slow economic activity. The World Bank recently projected Pakistan’s economy to expand by less than 4% in FY27, below the government’s growth target of more than 4%.
Recent surveys by brokerage firms indicate that more than 90% of market participants expect the SBP to keep the policy rate unchanged, with only a small minority anticipating a slight increase.
Financial experts say the direction of the Gulf conflict will remain a key factor shaping Pakistan’s economic outlook. They warn that persistently high oil prices could weigh on growth across developing economies, making a steady policy rate the most likely outcome until regional uncertainties become clearer.
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